New Zealand Leads on Incentive-Based Pay

February 6 2007 - A survey by global recruitment firm Robert Half International has found that New Zealand employers are leading the way in incentive-based pay for finance professionals. In the survey of more than 2500 finance professionals across 13 countries, New Zealand was first equal with Ireland with 55 per cent of employees receiving a bonus and first in terms of the proportion paid on a fixed basis subject to a formula (30 per cent).

These findings are consistent with the latest Auckland Salary Survey by Robert Half Finance & Accounting, which revealed that 53 per cent of the city's finance professionals received a bonus as part of their remuneration package and that this was rated the most important tangible employment benefit received.

"What is so encouraging about this figure is it reveals that after years of being criticised for not making enough use of incentive-based pay, New Zealand's finance employers have now 'got it'. Paying bonuses on a fixed basis, using a formula, means the system is transparent and employers and employees know precisely what employees have to achieve to qualify. Such systems are less open to favouritism and employees are more likely to buy in to them, seeing them as a fair way of rewarding achievement."

However, the survey also found that 19 per cent of New Zealand employees said their bonus was flexible and based on subjective judgement.

Kim Smith said:

"Employers might think this gives them the ability to reward stand-out performers in areas that might otherwise go unacknowledged, but in reality subjective bonus systems can lower morale and create staff divisions. Employees who don't receive a bonus, or receive only a small bonus, will believe that they have been treated unfairly and are likely either to put in less effort, or even start hunting for another job."

Kim Smith suggested this might explain why more job applicants want all their remuneration fixed in a salary rather than have a bonus included. However, some are prepared to accept a salary that is significantly lower than their potential earnings under a combined salary/bonus system.

Kim Smith commented:

"These applicants have probably experienced bonuses based on subjective judgement in previous jobs, and felt they were treated unfairly. Rather than run that income lottery again, they want to know precisely what they will be earning.

"Employers who want to retain and motivate staff know that financial reward for good performance, applied fairly to all employees, is a powerful incentive. But it has to be done properly - handing out financial rewards based on subjective judgement can do more harm than good.

"When a fair, transparent, formula-based bonus system is implemented it can be a strong staff motivation and retention tool. It's great to see that so many New Zealand employers have recognised that and are doing something about it."